Cuba: Pursuing Halfway Economic Reforms

By Ricardo Torres*

A sample of the 10 or 20 staples available in a “Bodega” depending on the weekday in Havana, Cuba./ Jorge Royan/ Wikimedia Commons/ Creative Commons License

The Cuban government is once again introducing only partial economic reforms – while preparing for the total reform of the monetary system – but its fear of the impact of these and other changes continues to prompt a rhythm of transformation that can actually worsen the contradictions that plague the economy.

  • Officials last July announced a strategy to deal with the current crisis, including reform measures that had long been postponed as well as new initiatives. Since then, the government has authorized the private sector to carry out certain foreign trade operations; introduced 15 adjustments to rules governing state enterprises; loosened regulations governing the distribution of agricultural products to incorporate new actors; and announced that currency reform was imminent. These steps all were taken in the context of deepening shortages and expansion of the use of the dollar in retail sales.
  • COVID‑19 and other exogenous factors have further fueled the deterioration of the Cuban economy, magnifying the need for reforms, but implementation of promised measures has fallen short of expectations, and the structural measures needed to lift the economy from its decades-long lethargy remain undone. Deeper changes, such as the flexibilization of cuentapropismo (self-employment) and approval of private small and medium enterprises remain mired in technicalities and interminable bureaucratic delays.

Overhaul of the monetary system is, without doubt, the measure of greatest potential impact in the short term – and the most complex. Cuban authorities grasp that it is an essential step needed to maximize the power of other changes, but – from a purely technical perspective – Cuba has a lot of work to do before monetary reform will work. After postponing this major change for two decades, only a minimum of the right conditions have been met.

  • When it takes the plunge, the government’s continued control over the productive sectors and distribution of most essential products will give it some ability to control inflation. But it won’t be able to ignore the real costs. People without stable incomes will face the most severe adjustment as higher prices and more widespread shortages will deepen economic uncertainty. That will be a challenge for a government that already faces political discontent, as exemplified by the recent protest in front of the Ministry of Culture. The emphasis on a careful communications strategy regarding impending economic changes is prudent, but delaying implementation of reforms once announced only worsens things. Indeed, as a direct result of perceptions mismanagement, prices are already going up, even before the monetary reform takes off. Lacking the appropriate instruments to manage inflation, authorities are responding by capping prices, which in turn exacerbates scarcity and threatens a vicious cycle.

As always, the Cuban government is giving priority to caution and stability over bold options – working hard to project legitimacy and self-confidence at home and internationally. Lacking direct external support, such as from the international financial institutions, Cuba has few options for reviving its moribund economy without radical changes. It is well established that partial reforms in centrally planned economies only lead to stagnation, external imbalances, and deterioration of macroeconomic indicators. Cuba suffers from all of these at this moment. But less ambitious and carefully managed reform reduces the risks of losing control, of fueling instability, and of diminishing the government’s ability to deal with the certain unforeseen consequences of the changes.

  • U.S. policies have steadily hardened in recent years, feeding Cuban policymakers’ perception of operating under a state of siege and giving them an excuse to divert attention from internal shortcomings while delegitimizing groups that demand political change. The U.S. pressure also harms the private sector, which is very dependent on foreign clients. The cuentapropistas and entrepreneurs can play a central role in the event of serious economic restructuring by creating jobs and forming a new productive fabric that is necessary for the future. Instead of accompanying these private players on their journey toward a potentially genuine transformation, Washington has taken its cue from immigrants of Cuban origin in suffocating the private alternative as well as the state-dominated economy.

December 9, 2020

*Ricardo Torres is a Professor at the Centro de Estudios de la Economía Cubana at the University of Havana and a former CLALS Research Fellow.

Cuba: Preparing for President Trump

By Fulton Armstrong

15859186069_103bf8055c_b

Photo credit: Day Donaldson / Flickr / Creative Commons

Cubans are already calibrating their expectations for relations with the United States under President Trump – hoping the normalization process does not unravel but preparing for a return to a sanctions-based policy from Washington.  Conversations in Havana reveal deep concern that the President-elect’s tweets and statements about Cuba, Mexico, and Latinos in the United States will translate into efforts to slow, stop, or reverse normalization.  The past two years of dialogue have focused on mutual interests, without ignoring remaining differences between capitals but not allowing them to blot out hopes of mutually beneficial cooperation.  Cuba will interpret a return to bombastic rhetoric, exaggerated conditions to reach a “deal,” and the pressure tactics of the pre-Obama era as a sign of U.S. willingness to put bullying a small neighbor eager for improved ties ahead of its own national interests.

Cubans present the stiff upper lip in conversations and, not surprisingly, defiantly note that they’ve already survived decades of U.S. pressure, but their disappointment is palpable.

  • Most concerned are entrepreneurs in Cuba’s small but growing private sector, who depend on investment from U.S.-based relatives and friends. More than 100 Cuban private businessmen wrote a letter to Trump last week urging restraint.
  • Nationalism has precluded Cubans from saying that normalization would be a major driver of their long-promised economic reforms, but few deny that improving ties with the United States would eventually present Havana important opportunities. U.S. retrenchment will remove important incentives for the government to move ahead with its reform strategy.
  • Rumors about tensions between Cuban proponents of normalization and conservative opponents may have some merit, but Cubans across the spectrum will close ranks if Trump gets aggressive.

Cuba’s reactions to Trump’s election, including President Raúl Castro’s congratulatory message to him, so far suggest that it will hold its tongue and resist being provoked.  A U.S. return to full-bore Cold War tactics would not pose an existential threat to Cuba, even considering the country’s difficulties dealing with unrelated problems such as the crisis in Venezuela.  Popular reactions to the passing of Fidel Castro last month are being construed as evidence of residual political legitimacy for the government and support for it to deliver on promised improvements.  Moreover, Cuba’s progress in normalization; its effective contribution to the Colombia peace accord; its new political dialogue and cooperation agreement with the European Union; and the recent Havana visit of Japanese Prime Minister Abe have boosted the country’s international image – and blame for collapse of normalization will surely fall solely upon the United States.  However difficult it will be for the proud people of Cuba to resist rising to whatever bait the Trump Administration throws its way, showing forbearance in the bilateral relationship and moving “without hurry but without pause,” as Raúl Castro said, with its national reform plan would protect the investment that Cuba has already made in normalization.

December 19, 2016